I expect a disconcerting CPI inflation report for March on Wednesday, April 12.
The headline, all-items inflation rate is expected to drop to an annual rate of 5.2% from 6%, according to economists surveyed by Bloomberg.
That would be good news for the Federal Reserve’s effort to lower inflation.
Except that economists expect the core Consumer Price Index inflation rate, which excludes more volatile energy and food prices, to rise to an annual rate of 5.6% from 5.5%.
And the core rate is the inflation rate that the Fed watches. Well, actually the Fed watches the core Personal Consumption Expenditures inflation numbers. The CPI inflation rate tends to run about 50 basis points hotter than the PCE rate, but the trends in the two inflation measures tend to run in sync.)
If economists are right in their projections, the Fed will be confronted with more evidence that inflation is proving very stickier, stickier than expected, and that ending interest rate increases with a final 25 basis point increase in My would be premature.
On Friday, perhaps in anticipation of next week’s report or as a reflection of the jobs figures for March showing a stronger-than-hoped labor market, bond yields moved higher as bond prices fell. (Which is what happens when bond buyers demand higher payouts in anticipation of higher future interest rates. The 2-year Treasury yield surged as much as 16 basis points to just under 4% and ended the day around 3.98%. The 10-year Treasury climbed as much as 10 basis points to 3.41% and finished Friday at 3.39%. The inversion of the curve between 2 and 10 years expanded by 6 basis points during the day as the yield curve continued to point toward a future Recession.)
The CME FedWatch tool puts the odds of a 25 basis point increase at the June meeting at 71.2%.
